In the past few years, India has witnessed an exponential growth in the digital services with the help of constant development in technology, increase in access to the internet, the ‘Digital India’ campaign and the favorable regulatory environment.
The most crucial component for a business providing digital services is Data and with the growing trend of digital services in India, the usage of Data has grown remarkably, and as a result of it the demand for establishing data storage facility i.e., Data Centers to handle, store and manage such abundance of Data has grown exponentially.
India has become one of the fastest growing Data Center hub and as per a report it is expected that the Indian Data Centers sector would grow at a CAGR of 12% through 2026 with emerging trends and technologies fueling this expansion.
However, even though the demand for Data Center is growing remarkably, the lack of Infrastructure, complex clearance process, lack of robust regulatory framework, time-consuming approvals, lack of security and high cost associated with such Digital Centers needs to be addressed to ensure a steady growth of Digital Centers in India.
In this article we attempt to discuss what Data Center is, How to Set-up a Data Center in India, what is the current Regulatory Framework governing Data Centers in India, and the Recommendations given by Telecom Regulatory Authority of India (“TRAI”) for the growth of Data Centers in India.
WHAT IS DATA CENTER?
A Data Center is a secured physical location, where with the help of a large network of computer servers the data is remotely stored, organized and distributed to its user. The computer servers at these Data Centers, compute and process the relevant data in response to user requests, making the desired information available to its user in an instant.
The Data Center has grown exponentially in the past few years, as traditionally the Data Centers were physical Infrastructures. However, with the introduction of cloud services, the infrastructure has shifted from on-premises servers to virtualized infrastructure that supports workloads across both the physical infrastructure and cloud environments.
HOW TO SET-UP A DATA CENTER IN INDIA?
A. Choose a Model
There are several business models which can be used to set up Data Center in India such as, On-Site Data Center, Converged Data Center, Cloud Computing Data Center, Green House Data Center etc., However, the most prominent Business Models to Setup Data Center in India are –
1. On-Site Data Center Model –
This is a Data Center, which is entirely build, owned, organized and managed by an Organization on its own premises. The advantage of such business model is that the company is able to have complete control over its Data and have the ability to change, expand, and/or consolidate Data as needed. It also allows the companies to alter their security needs as needed.
2. Colonial Data Center Model –
This is a Data Center, in which companies instead of managing their own Data Center infrastructure, the company leases infrastructure that is operated by a third-party uses data center resources via cloud data management facility accessible through internet.
In this model the cloud service providers manage everything from maintenance, updating equipment, and everything else that falls under data center operations. This model is being widely used by companies such as cloud storage examples are iCloud, Google Drive, Dropbox, Microsoft One Drive, and more.
B. Incorporate a Company
Once the Business model is decided, the person shall incorporate a company in accordance with the Companies Act, 2013, which can be in the form of a Private Limited Company, Public Limited Company, Limited Liability Partnership Act, Partnership Firm, One Person Company.
Thereafter, once the Certificate of Incorporation is received, obtain Permanent Account Number (“PAN”), Digital Signature Certificate (“DSC”), A Tax Deduction & Collection Account Number (“TAN”), A Director Identification Number (“DIN”).
C. Obtain the Licenses Required
In India currently, data center start-ups require approximately 30 different approvals from both the Central and State governments, which include Pre-Construction Clearance, Post-Construction Clearance, Statutory Approvals, Fire Hazard Approvals, Other Service Provider (“OSP”) license, Cloud Service Provider (“CSP”) license, etc.
THE REGULATORY FRAMEWORK
A. THE DRAFT DATA CENTER POLICY, 2020
The Ministry of Electronics & Information Technology (“MeitY”) in November 2020, proposed a Draft Data Center Policy, 2020 which will be applicable on the Data Centers established in India.
The Draft Data Center Policy proposes a policy framework for various structural and regulatory interventions, investment promotion in the sector, possible incentivization mechanisms along with an institutional governance mechanism, such as –
a. Infrastructure Status – To provide Infrastructure Status to the Data Center Sector at par with other sectors like Railways, Roadways and Power, which will help to avail long-term credit from domestic and international lenders at easier terms, to boost investment in this sector.
b. Single Window Clearance System – To provide a single window clearance system by publishing a list of approvals required for operationalization of Data Centere from State Governments and Union Territories for setting up data centere/data center parks in a time bound manner.
c. Specific Data Center Zones – To set up at least four Data Center Economic Zones in India under a central scheme as well as demarcation of specific zones by the States for setting up data center parks, which will provide inter-alia pre-provisioned land, power availability at low rates and pre-approved clearances.
d. Classification of “Essential Services” – To classify the services provided by Data Centers as an
Essential Service under The Essential Services Maintenance Act, 1968 (“ESMA”) so that the services provided by Data Centers can continue even during times of calamities or crisis.
e. Data Center Industry Council – To setup an independent Data Center Industry Council, which would act as an interface between the sector and the Government.
Further, the Draft Data Center Policy provides that it seeks to encourage joint ventures between foreign investors and domestic companies for the development of data centers in India, as currently 100% Foreign Direct Investment is allowed for setting up Data Center in India, except in cases when the investment is being made from a “Restricted Country” or where the beneficial owner of an investment into India is situated in or is a citizen of any such Restricted Country, then prior approval of Government is required.
B. THE STATE DATA CENTER POLICIES
Although the Central Data Policy is still a work in progress, States such as Maharashtra, Telangana, Tamil Nadu and Uttar Pradesh have already adopted their respective Data Center policies which seek to provide various concessions and incentives to operators, including real estate support and faster clearance such as –
a. The Maharashtra’s Data Center Policy, 2016 –
It provides certain fiscal incentives such as stamp duty exemption, electricity duty exemption, VAT refund and property tax benefits for data centers fulfilling certain eligibility criteria.
b. The Telangana’s Data Center Policy, 2016 –
It provides fiscal incentives such as power incentives, building fee rebates and land at subsidized costs, as well as non-fiscal incentives such as exemption from the purview of the Telangana Pollution Control Act, exemption from statutory power cuts, exemption from inspection under specified labor legislations and permissions to file self-certificates).
c. The Tamil Nadu Data Center Policy, 2021 –
It offers a single window facilitation portal to ensure time-bound processing of applications and coordination with various agencies and departments to get clearances from them and provides incentives such as electricity tax subsidies on power, concessional open access charges and cross subsidies, dual power and stamp duty concessions and permits self-certificates in relation to compliance with maintenance of statutory registers and forms under applicable labor legislations.
d. The Uttar Pradesh Data Center Policy, 2021 –
It provides for various incentives to data center park developers as well as data center units, such as interest/capital subsidy, land subsidy, stamp duty exemptions and dual power grid network, as well exemption from inspection under specified labor legislations and permissions to file self-certificates.
a. Provide Data Center Incentivization Scheme (DCIS) –
the government shall bring out Data Center Incentivization Scheme (“DCIS”) to provide fiscal as well as non-fiscal incentives for establishing Data Centers and Data Center Parks in India.
b. Establish Data Center specific portal on National Single Window System (“NSWS”) –
The Government shall establish a Data Center specific portal on NSWS for –
- Time-bound single window clearances;
- Mandatory online registration of new Digital Centers, without any obligation or registration fees;
- Issue of notifications, announcement of schemes & benefits, facility to interact and respond to queries of potential investors, and grievance redressal of existing and prospective Digital Center operators.
c. Establish Digital Center Economic Zones (“DCEZs”) – Identify one SEZ each in State of Andhra Pradesh, Kerala, Karnataka, Maharashtra, Haryana, UP, MP, Gujarat, Rajasthan, and Odisha, for either converting them into DCEZs or for carving out zones out of these SEZs for establishing Digital Center. out of suggested list of 33 SEZs which are located in areas with abandon power and water.
d. Develop India specific building norms, standards, and security certification framework
- BIS should be entrusted upon for developing different India-specific building standard for construction of DCs and to develop India specific standard-based certification framework for the DCs.
- For addressing security aspects of DCs, TEC and STQC should jointly work to develop DC security certification framework based on third party Audits.
e. Promote Green Digital Centers –
- Indian Green Building Council (“IGBC”) along with Telecommunication Engineering Center (“TEC”) should be entrusted with task of framing certification standards of green DCs in India.
- Government should form a scheme to invite Requests for Proposal (“RFP”) on an experimental basis for new technology/methods/processes that can be adopted for promoting green DCs.
f. Build a Digital Data Infrastructure –
- A statutory body such as Data Digitization and Monetization Council (“DDMC”) shall be established for steering the data digitization drive in India and for putting in place an overarching framework for ethical use of data both by Government as well as by corporate in India.;
- The Central Government should put in place a data sharing and consent management framework in lines with DEPA framework to provide telecom subscribers consent based option to share their KYC data with recipient TSP when they port their numbers.
Data Centers appears to have a promising future In India, as considering the growing reliance on digital connection, rapid shift towards digitalization, increase in internet users, and expanding use of IoT-connected products. India has the potential to dominate the use and development of data center on a global scale with the appropriate legislation in place.
Furthermore, with the introduction of the Data Protection Bill, 2022, which focuses on data localization stating that a mirror copy of all sensitive and critical personal data already stored in abroad be mandatorily brought to India. There is now high demand of a policy, which could provide an adequate infrastructure for safe storage of data.
Therefore, in view of the above, the requirement of introducing the Data Center Policy, in accordance with the recommendation of TRAI for establishing Data Centers in India, has become much more vital than ever.
– Team AMLEGALS
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